The long pipes to LNG supply

A few weeks ago, Mint reported on a private port company, a joint venture between L&T Ltd and Tata Steel, setting up the first liquefied natural gas (LNG) receiving terminal on the country’s east coast. Evidently, the presence of a large gas field in the Bay of Bengal producing one-third of the country’s domestic supply and which sells at less than one-third of LNG prices had hardly dampened the enthusiasm to import gas and sell in the nearby markets. After all, public sector Indian Oil Corp. (IOC) is also planning to set up an LNG-receiving terminal in Ennore, Tamil Nadu.

No doubt the two promoters are emboldened by the recent dip in production at this domestic field, whose contractor Reliance has been able to only produce half that projected in 2006—indeed, the shortages have become more acute. IOC’s chairman is on record to state that he is willing to go ahead and set up the plant even if long-term supply is not available. In other words, he is betting on consumers willing to even pay the higher prices prevailing in the global LNG spot market.

His presumption, however, underscores a larger problem afflicting the Indian gas market—that of access.

Industries are keen to bring down energy costs by switching over to LNG, which is cheaper than naphtha they often use, by 20-40%. And, setting up an LNG-receiving terminal is hardly a technological feat—it basically involves splashing warm seawater over the LNG that has been cooled to -162 degree Celsius, and thereby bringing it back to gaseous state, ready for consumption.

However, the crevice between the two ends is deep and wide for the industry to put its money. For, on the physical side, it requires an elaborate infrastructure of pipes and pumps to cart this gas to the industries. On the market side, the utilization of such assets created with a minimum economic size improves only over the years, and even there, it is fraught with risks posed by the long-term viability of the consumers.

No wonder, state agencies— GAIL, GSPC Ltd—have set up close to 85% of the gas highways. This approach also precludes the possibility of more players in the gas-marketing business.

Should the government intervene in the market and create a pipeline infrastructure? Tell us at views@livemint.com